Commonwealth S. S Co. v. American Shipbuilding Co.

• Decision Date: 24 June 1912
• Docket Number: 8,210,8,214,8,215.
• Citation: 197 F. 797
• Parties: COMMONWEALTH S.S. CO. v. AMERICAN SHIPBUILDING CO. (three cases).
• Court: U.S. District Court — Northern District of Ohio

197 F. 797

COMMONWEALTH S.S. CO. v. AMERICAN SHIPBUILDING CO. (three cases).

Nos. 8,210, 8,214, 8,215.

United States District Court, N.D. Ohio, Eastern Division.

June 24, 1912

It appears from the record in this case that William A. Hawgood and Arthur H. Hawgood were brothers; that they had been in the vessel business in Cleveland for a number of years; that together with another brother, Henry A. Hawgood, prior to 1905, they had organized vessel companies and had had various transactions with the American Shipbuilding Company; that William A. Hawgood and Arthur H. Hawgood had known James C Wallace, the president of the American Shipbuilding Company for at least 15 years; that, prior to the transactions complained of in this suit, William A. Hawgood and Arthur H Hawgood had planned to secure options on vessels from the American Shipbuilding Company, later to form corporations which corporations would later acquire the boats so to be built; that in those transactions they secured commissions from the American Shipbuilding Company, which were not made known to the others concerned; that before March, 1905 Arthur H. Hawgood and William A. Hawgood had some conferences with the American Shipbuilding Company concerning the price to be placed upon a boat to be built by the Shipbuilding Company, and to be known as the 'Abraham Stearn'; that they later conferred with one Sheldon Parks and planned a prospectus, which provided in substance that a company known as the Commonwealth Steamship Company was to be incorporated under the laws of the state of Ohio, to acquire and operate a steel lake freighter, that bonds and stock would be issued, that William A. Hawgood and Arthur H. Hawgood would be the agents for the company, and that the steamer would be built by the American Shipbuilding Company, the steamer to be modern and fully equipped and in all details a proper boat for the efficient handling of cargoes on the Great Lakes. The contemplated prospectus then recited the history of the vessel trade on the Lakes for some years past, and recited that an option had been given by the American Shipbuilding Company to William A. Hawgood and Arthur H. Hawgood of Cleveland, Ohio, to build this boat at a cost of $385,000.

Following the prospectus was the following writing:

'Subscription Agreement.

'Each subscriber hereunder agrees to take and pay for, at the price and in the manner hereinafter stated, the number of shares opposite his signature hereto of the full-paid stock of the Commonwealth Steamship Company. The price is to be one hundred ($100.00) dollars in cash for each share of such stock, and is to be paid to W. A. Hawgood & Co. in the following manner:

'Ten per cent. of the subscription when contract for ship is signed and the balance of the subscription in installments of not to exceed eighteen per cent. Each within ten days after notice calling for such payment shall be delivered or mailed to such subscriber by said W. A. Hawgood & Co.

'This agreement may be executed in separate writings with the same effect as if all signatures were on one writing and shall bind and benefit the personal representatives and assigns of all parties.'

Sheldon Parks had been associated with the Hawgoods for some years in the sale of stock in various companies which had been planned by the Hawgoods, and he assisted, it is quite evident, in planning the prospectus referred to in the record.

In June, 1905, W. A. Hawgood, Arthur H. Hawgood, and Sheldon Parks held a conference and decided to enter into the venture, practically along the lines set forth in the prospectus. It was decided that the boat should be called the 'Abraham Stearn,' and that William A. Hawgood and Arthur H. Hawgood should receive for their services in securing from the American Shipbuilding Company the option and the contract for a vessel and collecting the money and seeing that the vessel was built according to contract, the sum of $5,000.

On or about July 1, 1905, James C. Wallace, William A. Hawgood, and Arthur H. Hawgood held a conference at the Hawgoods' office, at which conference they came to an understanding that the American Shipbuilding Company should give William A. Hawgood and Arthur H. Hawgood an option on the vessel to be known as the 'Abraham Stearn' to be built at the price of $385,000, and that the Shipbuilding Company should pay to them a commission of $15,000. On July 1, 1905, the written option was given. From that date until the middle of August of the same year, Arthur H. Hawgood, William A. Hawgood, and Sheldon Parks, and other persons, secured signatures to the paper which had been referred to as attached to the prospectus. During this period of time a number of prospectuses were given to the public with the so-called subscription agreements attached to them, and between these dates various persons attached their signatures to these papers, providing for the payment of the aggregate sum of some $200,000, and on August 16, 1905, William A. Hawgood and Arthur H. Hawgood, as trustees, entered into the contract with the American Shipbuilding Company for the construction of the steamer Abraham Stearn. It appears that the Hawgoods explained to James C. Wallace that they were organizing the Commonwealth Steamship Company and that this company was to own the 'Abraham Stearn.' Between August 16 and August 31, 1905, W. A. Hawgood & Co. issued a call for payments from the signers of the so-called subscription agreement. The first payment to the American Shipbuilding Company was made August 31, 1905, by William A. Hawgood and Arthur H. Hawgood, trustees. At the same time the American Shipbuilding Company gave its checks to Arthur H. Hawgood and William A. Hawgood each in the sum of $7,500. The receipt of these payments was not recorded by the Hawgoods.

Following these transactions several other undertakings of a similar nature were entered into between the Hawgoods and the American Shipbuilding Company. They involved the construction of the steamer H. B. Smith, the J. Q. Riddle, and other steamers. Between October, 1905, and November, 1905, the steamers H. B. Smith and J. Q. Riddle were constructed, and on these transactions the Hawgoods received sums of money from the American Shipbuilding Company, paid as commissions.

On November 8, 1905, the Commonwealth Steamship Company was incorporated, with H. A. Hawgood, W. A. Hawgood, Arthur H. Hawgood, Sheldon Parks, and one other as the incorporators. At the time the company was incorporated, the so-called subscription agreements were signed by from 70 to 80 persons. On November 22d a board of directors was elected, consisting of six persons, namely, W. A. Hawgood, H. A. Hawgood, J. Q. Riddle, Sheldon Parks, Arthur H. Hawgood, and Abraham Stearn, and the following officers were elected: H. A. Hawgood, president; William A. Hawgood, vice president; Arthur H. Hawgood, secretary and treasurer; and William A. Hawgood, manager.

The original subscribers to the stock of the company, as appears in the record of the corporation, consisted of: Sheldon Parks, 100 shares; Arthur H. Hawgood, 100 shares; Abraham Stearn, 100 shares; W. A. Hawgood, 100 shares; and J. Q. riddle, 50 shares.

At said meeting of November 22d a resolution was passed to pay William A. Hawgood and Arthur H. Hawgood $5,500, and to pay Sheldon Parks and others various sums of money. The resolution mentioned in part that the Hawgoods secured the steamer for $10,000 less than it could now be purchased, and had otherwise carefully guarded the company's interests. At this same meeting the officers of the company were directed to make calls for the amounts subscribed for by the signers to the so-called subscription agreements. Prior to the incorporation of the Commonwealth Steamship Company, two calls were made and two payments made to the American Shipbuilding Company; but, after the organization of the company, four calls were made and four payments made to the American Shipbuilding Company. Later, in January, 1906, arrangements were made for the issuance of $190,000 of bonds. These bonds were later issued, and on April 20, 1906, the steamer Abraham Stearn was delivered to the Commonwealth Steamship Company.

From November, 1905, to April, 1906, the Hawgoods filled the offices to which they were elected, and in April, 1906, Henry A. Hawgood died, and from that time until February 1911, William A. Hawgood was president, Abraham Stearn, vice president, Arthur H. Hawgood, secretary and treasurer, and William A. Hawgood, manager. During this period of time the Hawgoods held a sufficient number of proxies to control the policy of the company.

At a meeting of the company on January 14, 1911, the statement was made that certain stockholders had information that William A. Hawgood and Arthur H. Hawgood had received a commission in connection with the building of a vessel. This was denied by both of these gentlemen. On February 9, 1911, the number of the directors was increased to 21, and the Hawgoods ceased to be executive officers of the company. On April 7, 1911, the capital stock of the company was increased. From this time up to August 3, 1911, there were rumors that the Hawgoods had received a commission, and some conferences along this line were had by parties interested; but no action was taken by the company, nor does it appear that this fact was officially communicated to the company. On August 3, 1911, a stockholder commenced a suit against the Hawgoods for an accounting growing out of the payment of certain commissions, and on September 5, 1911, the deposition of James C. Wallace was taken in this suit, which was brought by the stockholders and known as the 'Whitney Case,' filed in the common pleas court of Cuyahoga county, in which James C....